What is a Charitable Foundation?

What is a charitable foundation and why would businesses or individuals set them up?

These are charities set up as a corporate entity or group (or by an individual or their family) that are run independently by their own boards of trustees in the best interests of the charity’s purpose, and which are not beholden to the founders – albeit there may well be continuing links and alignment between founder and charity, for mutual benefit.

Some of the main reasons for setting up charity foundations (with grateful acknowledgement to the Association of Charitable Foundations are):

• A corporate donor is entitled to be proud of the achievements of a foundation it has created and to refer to it, providing only that it never presents those achievements as its own.

• Some companies, after years of establishing disparate CSR activities, unite them all under a charitable foundation to ensure that all are captured in a CSR report and that they complement each other and maximise effort for charitable return.

• Having a foundation can be great for staff morale and building a sense of common purpose and a possible factor in attracting the best new talent to your organisation. Single donations from your company to a charity may or may not even be noticed by staff, but the steady stream of foundation grants or activities can be reported in staff newsletters and employees can share in the pride that their fundraising efforts are going to support a range of charities and build a sense of momentum. Supporting a foundation can contribute to an organisation’s focus on ESG issues, in particular by helping to strengthen its own culture.

• Trust in business is a fragile thing; businesses are sometimes accused of exploiting their charitable activities for commercial benefit. But setting up an independent foundation to do charitable work without being directly controlled by the business is a valid response to all the cynicism.

• A foundation is a constant reminder that businesses are not faceless machines but are run by people and shareholders who take responsibility for seeking to improve the society in which they live and work. It is a visible correction to the assumption that businesspeople only care about the bottom line.

• Individuals may set up their own foundations for similar reasons, as well to create a personal legacy or to imbue successive generations of their family with the philanthropic spirit that has motivated them to seek to make a positive difference.

Setting up a charitable foundation may be an appropriate way of achieving some or all of these goals but it is not the only one and there are alternatives.

By Robert Nieri robert.nieri@shoosmiths.com

Robert Nieri is a Legal Director at Shoosmiths LLP specialising in advising charities and businesses on their dealings with charities, whether to further their CSR or ESG aspirations.

This information is for educational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.